x Abu Dhabi, UAETuesday 23 January 2018

Dubai's Emirates NBD to test investor appetite with debt swap

Emirates NBD tests the waters of credit markets with a debt swap, as a number of UAE banks look to refinance their upcoming debts - with video.

Emirates NBD is preparing to test investor appetite with a debt swap, as the banking sector begins a round of refinancing that could set the tone for the financial sector's fund-raising efforts for the rest of the year.

The Dubai-based bank, the largest in the UAE by total assets, will offer longer dated notes due in 2018 to holders of its existing subordinated debts, due in 2016. Those notes have a total of $514 million (Dh1.88 billion) outstanding.

The notes will be priced at 1.5 per cent above three-month US dollar London Interbank Offered Rate (Libor), according to a filing to the Nasdaq Dubai exchange. Investor demand for the swap will be revealed after the offer closes on 26 May.

The move is primarily an effort to bolster capital adequacy rather than address liquidity needs, analysts said. But the swap comes as a number of the UAE's big banks attempt to refinance their upcoming debts.

Regional debt issuances dwindled in the first quarter of the year because the Middle East's political turmoil sparked concern about international buyers' appetite for suddenly riskier debt.

Though issuers are returning to the market, the recent takeover of Dubai Bank may raise some question marks over international investors' appetite for bank debts.

Dubai's government rescued the Islamic lender on Monday to prevent its collapse and protect depositors.

However, investment bankers said that the demand for credit from Sharjah Islamic Bank, which returned to markets with a $400m (Dh1.46bn) sukuk on Wednesday, shows that investors in UAE bank debt are not taking fright.

"I don't think demand for banks' [issuances] in the UAE is dropping by any stretch," said one Dubai-based investment banker.

Abu Dhabi Commercial Bank has a number of sterling, euro and yen bonds worth the equivalent of $880m (Dh3.23bn) which are due for repayment at the end of this year, while Abu Dhabi Islamic Bank must repay a $800m (Dh2.93bn) sukuk maturing in December, according to data from Bloomberg.

Emirates NBD is also due to see $773m (Dh2.839bn) of debts mature this year.

Capital adequacy ratios in the banking sector have increased greatly as the UAE's property bust eases and revenues from higher oil prices flow through the financial system.

"Liquidity positions of the banks have dramatically improved recently," said Jaap Meijer, a financial analyst at AlembicHC Securities.

Speculation has recently been mounting that Dubai Bank will be merged with Emirates NBD or Emirates Islamic Bank, its Sharia-compliant subsidiary.